Of all the controversial reforms launched by Prime Minister Narendra Modi in the market, recent laws to liberalize agricultural sales may prove to be the most ambitious.
In a hectic and unruly session last month, parliament passed three laws that some say could pave the way for India to shake up the global food trade, while others fear it will ruin them. livelihoods of millions of farmers. Within days, rural groups and opposition leaders launched public protests.
The move towards a free market for agricultural sales is at the heart of a system that directly affects more than half of the country’s 1.37 billion people, changing government controls over which millions of families have ended up s ‘support, but which have hampered the nation’s efforts to productively exploit one of the world‘s largest areas of fertile land. If they are successful, India could not only feed itself, but become a major food exporter.
“We need private sector investment in technology and infrastructure for Indian agriculture in order to realize its full potential and better compete in the global market,” said Siraj Chaudhry, Managing Director and CEO of the agricultural services company National Collateral Management Services Ltd. But the government must clearly express its intention to convince the skeptics. “This is a major policy change which has an impact on a large and vulnerable section of the population.”
India processes less than 10% of its food production and loses around 900 billion rupees ($ 12.3 billion) per year due to wastage from an inadequate cold room, said Amitabh Kant, chief executive of the group of government thinking NITI Aayog.
PM Modi has a long summary of contentious political steps, including a ban on high-value commercial paper, the biggest tax reform since independence in 1947, and the world‘s toughest coronavirus lockdown rules. The latest seems mild in comparison: a set of amendments to the laws governing the buying, selling and storage of agricultural products.
Yet eight opposition MPs were suspended for unruly behavior when the new bill was passed, and groups representing farmers and political parties staged protests, sit-ins and tractor rallies in states. grain producers such as Punjab, Haryana and Madhya Pradesh.
Shiromani Akali Dal, a longtime supporter of the ruling Bharatiya Janata party, which rarely went against the decisions of Prime Minister Modi’s coalition, has resigned from the government. He said farmers feared the measures would end up killing the government’s price support regime for crops and leaving them at the mercy of the big companies that would control the market.
Prime Minister Modi and his ministers say the concerns are unfounded and the price guarantee program will continue. His administration has even increased minimum prices for winter crops to try to reassure farmers that price support is not in danger.
I said it earlier and I will say it again:
The MSP system will remain.
Public procurement will continue.
We are here to serve our farmers. We will do all we can to support them and ensure a better life for generations to come.
– Narendra Modi (@narendramodi) September 20, 2020
It is a very moving subject in India. The government sets floor prices for more than two dozen crops and mainly buys wheat and rice for its welfare programs as well as pulses and oilseeds to avoid distress sales by farmers. The massive subsidies help distribute basic commodities to the poor through a chain of more than 500,000 fair-priced stores.
The issue has become even hotter because of the pandemic. The disruption of farms and supply chains has exposed weaknesses in the government’s social protection system, which is hampered by bureaucracy, underfunding, and archaic distribution facilities.
Farmers point out that while government guaranteed prices are often taken as benchmarks, private buyers do not have to pay them.
“We are disappointed,” said Charanjeet Singh, who grows rice, wheat and vegetables on his farm in northern Haryana state. “The government should ensure that all farmers, whether selling to designated grain markets or to private buyers, will get at least the minimum support price.”
Analysts and industry experts say the new policy has the potential to change the face of Indian agriculture, which has been hampered by low yields and inefficient small farms, by further encouraging contract farming. It is a system in which private companies agree on crop prices with farmers before harvest or even before sowing, offer loans, provide quality seeds, and encourage mechanization.
The new rules would also make it easier to sell crops in other states or abroad. Farmers would have a more stable income and increased production would boost exports and incomes, they say.
“Overall, the reforms should benefit farmers and encourage contract farming,” analysts from Motilal Oswal Financial Services Ltd. said. in a report. “With private sector involvement increasing over the years, the supply chain and infrastructure of India’s agricultural sector would improve.”
Agriculture has lagged behind other sectors of the Indian economy. The rural poverty rate is around 25% compared to 14% in urban areas, according to World Bank data. Underinvestment has made the food supply vulnerable, a fact that is being highlighted as the coronavirus spreads across the country.
Food inflation accelerated by 9.7% in September as Covid hit the country’s already fragile supply chains. While supporters of agricultural reforms say the changes would make the system more robust in the future, others argue that the crisis reinforces the need for a safety net for farmers.
‘End of the road’
“This will be the end of the road for the food security program,” said Kannaiyan Subramaniam, general secretary of a farmers’ union in southern India, which grows gooseberries, potatoes and vegetables. ‘other vegetables. “In the long run, companies will monopolize trade, production and stocks. The government will succumb to WTO pressure and get rid of government grain markets.”
Prior to the new amendments, farmers in most states were not allowed to sell their crops outside of government-facilitated wholesale markets and faced legal barriers in transporting crops to other states.
At the center of the reforms is an amendment to the Essential Products Act, a 1955 law that some say is at the root of India’s agricultural inefficiency.
“It was an anti-farmer policy,” said Atul Chaturvedi, president of the Indian Association of Solvent Extractors, which represents vegetable oil processors. “This one act has severely hampered the growth of Indian agriculture.”
When prices rose due to demand, the law’s price control measures came into effect, discouraging investments to increase production, said Chaturvedi, who is also executive chairman of Shree Renuka Sugars Ltd. The government would also sometimes ban exports of certain agricultural products to control local prices, as well as limiting the capacity to store crops. Farmers suffered huge losses when production, especially of perishable foods, increased.
Some critics of the law amendments say the new situation could be worse for farmers. Businesses and multinational corporations buy agricultural products at a lower price and sell at higher prices, “squeezing both ends through hoarding and the black market,” said the All India Kisan Sangharsh Coordination Committee, a lobby group farmers. “There is no penalty for breach of contracts.”
If the government can push reforms forward while retaining the support of farming communities, it could create a platform for large-scale improvements in the country’s food production. The country is already the world‘s largest milk producer and the second largest producer of wheat, rice and some fruits and vegetables. It is also one of the largest exporters of cotton, rice and sugar.
If India can raise productivity to global standards, the country could become “an important link in global food supply chains,” NITI Aayog’s Kant wrote in a newspaper article. The new reforms, he said, paved the way for India to become “a power exporting food”.
– With the help of Sanjit Das.